Trailing Stops Can Potentially Add To Your Profits–Here’s How

• March 22, 2005
• Steve Primo

Here’s a great example of why you might want to apply
trailing stops to your trading instead of a fixed price exit. On the
close of Feb 10, the Swing Trading College R4 Method issued a buy signal in
BOOM. Entry was at the stock’s closing price of 11.84, give or take a few ticks.
On the close of Feb 14, the R4 Method issued an exit signal at 13.45, with the
stock gaining nearly 14% in only two days.

Here’s the problem. BOOM proceeded to rise over 20 points in the next four
weeks! We were in the trade near the very lows and got a quick +1.60-point
profit out of the trade, but how could one have taken full advantage of the
ensuing rally? By using trailing stops.

The
chart below shows our proprietary system’s entry and exit points. Yet if a
student wanted to slightly alter the trading rules to fit their own personal
risk parameters (which is permissible at the College), one could have chosen to
exit half of their long position on the exit of Feb14, and let the remaining
half stay in the trade while applying a trailing stop. Notice how a higher stop
level was created with each new pivot low in the stock. Using this pivot stop
strategy, you would still be in the trade while enjoying the best of both worlds
– using a highly profitable system with over 10 years of research behind it to
enter your trades, and then allowing your profits to run while applying a
trailing stop.

  

Steve Primo

stevep@tradingmarkets.com

P.S. Join me for an intense 14-week swing trading program in which I’ll cover
six statistically-backed systems.

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